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TMI Blog2009 (3) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... icles in Surajpur, Uttar Pradesh. DCM Toyota was incurring heavy business losses. In order to protect the investments in DCM Toyota, assessee company took initiatives to locate a new joint venture partner. Accordingly in 1994, Daewoo Motors of Korea was inducted as a joint venture partner. In order to get fresh funds, fresh capital was issued to Daewoo Motors Korea in above company with necessary approval of Government of India. In order to protect its investments the assessee company was interested that Toyota Corporation should not transfer its shareholding to anybody else. Accordingly the assessee company agreed to acquire their shareholding at a price mutually decided of Rs. 28 per share. The assessee company considered appropriate to acquire these shares through wholly-owned subsidiary company. Accordingly in order to acquire shareholding interest of Toyota Corporation, Japan, the assessee provided finance to DCM International Ltd. for acquisition of 55.50 lacs shares held by Toyota Corporation. Shares were acquired @ Rs. 28 per share as against market price of Rs. 70-80 on 20th Jan., 1995. After the said collaboration with Daewoo Corporation, the name of company was changed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Accordingly on settlement of loan the company had incurred a capital loss of Rs. 98.55 lakhs within the meaning of s. 45 of the Act. The assessee placed reliance on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Minor Bababhai alias Lavkumar Kantilal (1981) 128 ITR 1 (Guj) and the decision of Hon'ble Supreme Court in the case of CIT vs. Mrs. Grace Collis & Ors. (2001) 166 CTR (SC) 201 : (2001) 248 ITR 323 (SC). 5. The claim of the assessee as deduction of amount written off as business loss was rejected by the AO on the ground that the loss suffered by the company in respect of loans given to DCM International Ltd. was not allowable as business expenditure. In earlier years interest in respect of loans had been disallowed on the ground that the loans were not given in business interest. The alternative claim of the assessee was also rejected on the ground that loan could not be said to be capital asset and therefore, loss suffered on settlement of loan could not be said to be capital loss under s. 45 of the Act. 6. On appeal learned CIT(A) observed that the amount of Rs. 98,55,254 could not be allowed as business loss for the reasons that the assessee was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is claiming the loss occurred as business loss under s. 28 r/w s. 37 of the Act. It may be noted from the facts stated above that the loan was given by the assessee to subsidiary company to acquire shareholding of Toyota Corporation in joint venture company DCM Toyota Ltd., which was set up in collaboration with the assessee company and Toyota Corporation, Japan. Subsequently Daewoo Corporation was inducted as joint venture partner to whom fresh shares were issued. Thus the finances advanced to DCM International for the purpose of acquisition of shareholding of Toyota Corporation was realised from Daewoo Corporation, Korea. The OCM International became a debtor for amount so advanced. Since OCM International Ltd. could not repay the loan, remaining 21.47 lakhs shares of Daewoo Motors were acquired by the assessee and the balance amount of Rs. 98,55,254 was written off and claimed as business loss. There is no dispute that the assessee is in the business of manufacturing and real estate and the action on the part of the assessee to advance loan to its subsidiary is not in line with normal business activities of the assessee. The assessee is also not in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a business loss under s. 28 r/w s. 37 of the Act. 10. It has also been contended that the Tribunal has allowed the claim of the assessee in asst. yr. 2000-01 by dismissing the Revenue's appeal that interest paid on borrowed funds diverted to sister concerns as a measure of commercial expediency could not be disallowed in view of decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT(A) & Anr. (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC). Hence, the Tribunal has accepted the contention of the assessee in principle that the said loan was given for the purposes of business and, therefore, the loss incurred is allowable as deduction under s. 28/37 of the Act as the same was incurred during carrying on of the business of the assessee. We are unable to accept this proposition. It is a settled law as held by Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) that it is neither desirable nor permissible to pick out a 'Word or a sentence from the judgement of the Supreme Court divorced from the context of the question under consideration and treated to be the complete law declared by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any kind connected with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for the purpose of the business; (ii) personal effects; (iii) agricultural lands. Hon'ble Calcutta High Court in CIT vs. East India Charitable Trust (1994) 206 ITR 152 (Cal) has held that deposits and investments are a kind of property and they do not fall in exclusionary limb of said definition. In the case before us the amount does not represent a deposits or investment. However it has been pleaded that loan is an asset and extinguishment thereof is a transfer within the meaning of s. 2(47) of IT Act. The definition of "transfer" in cl. (47) of s. 2 includes extinguishment but that extinguishment refers not to the extinguishment of the asset itself but to the extinguishment of the holder's right to the assets. This position of law has been finally settled by the Supreme Court in its decision in Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC). In that case, a fire broke out in the mill's premises causing extensive damages to the mill including its machinery. The Revenue brought to tax the difference between the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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